Source: Xinhuanet April 28, 2020
As an important economic indicator, international oil prices have emerged from the downward trend of shocks since the beginning of this year. Last week, the price of light crude oil futures (WTI) delivered on the New York Mercantile Exchange in May experienced a historic plunge, falling to a negative value for the first time, triggering market panic. Why has international oil prices plummeted? What impact will it have on the recovery of the world economy?
What is the recent trend of oil prices?
In 2018, the average price of international oil prices was approximately US$65 per barrel. In 2019, due to the overall oversupply and restraining the upward trend of international oil prices, there was almost no breakthrough of USD 65 per barrel throughout the year. Investors had hoped that international oil prices would rebound strongly in 2020. However, multiple factors superimposed the outbreak of the new crown epidemic, which caused international oil prices to fluctuate violently.
The first four months of this year can be divided into four stages of the trend of international oil prices. Oil prices have declined overall, but for different reasons. In January, in response to the increase in the end of last year and the international oil price correction, the average WTI price fell from US$60 per barrel at the beginning of the month to US$50 per barrel at the end of the month. In February, the new crown epidemic broke out and investors expected market demand to decrease, and the average WTI price dropped from US$51 to US$44 per barrel.
In March, the average price of WTI plunged to the level of US$20 per barrel due to the breakdown of negotiations between the Organization of Petroleum Exporting Countries (OPEC) and the Russian production reduction agreement and the increase in production capacity. In April, due to the impact of the epidemic on supply and demand and the lack of global inventory space, WTI appeared \"negative oil prices\".
\"Negative oil price\" will appear again?
\"Negative oil price\" appears, there are market factors, there are factors that change the trading rules.
As far as supply and demand are concerned, the major oil-producing countries have previously competed for market share, \"guarantee quantity but not price\". Global energy demand has shrunk due to the epidemic at this time, and market participants estimate that crude oil demand in the second quarter may hit a 25-year low.
In terms of inventory, analysts believe that global inventories may reach 1.3 billion barrels at the end of April, which is only 100 million barrels away from the global inventory space valuation; while the three major oil-producing countries, the United States, Saudi Arabia and Russia have daily production capacities Ten million barrels level. This means that if demand cannot be released on a large scale, the global inventory space will soon be exhausted.
As far as shipping is concerned, shipping capacity has been severely hindered due to the epidemic and costs have risen rapidly. In addition, there are 400 million barrels of crude oil stocks in the world at sea, and the outbreak caused the tankers to not function properly, which also made it more difficult to use these spaces.
In terms of exchanges, the Chicago Mercantile Exchange Group, which belongs to the New York Mercantile Exchange, previously adjusted the trading rules for \"zero oil prices\" or \"negative oil prices\". On March 19th, the Chicago Mercantile Exchange Group revised the original market fuse standard, and began to support zero-value trading and negative-value trading from April 5th, and tested the system on April 15th.
On April 20th, the price of light crude oil futures delivered in May closed at -37.63 dollars per barrel. In this context, there has been a huge loss of investors in China and India.
In the short to medium term, many experts and industry insiders believe that the factors leading to the emergence of \"negative oil prices\" still exist, and June futures prices may continue to fall. Due to the uncertainty caused by the epidemic, international oil prices are likely to continue to overshoot before rebounding.
\"Negative oil prices\" What impact does the global economy have?
From the perspective of the global economy, \"negative oil prices\" or the collapse of oil prices have two main negative effects.
On the one hand, it is not conducive to financial stability and exacerbates turbulence and crises. In the US financial market, an important source of funding is \"petroleum dollars\", that is, after oil-producing countries obtain a large amount of foreign exchange, they invest money in the Wall Street financial market. But now the oil-producing countries will inevitably return under the pressure of low oil prices, which will lead to the outflow of US capital.
At the same time, US shale oil is backed by financial capital. Some experts estimate that the cost of shale oil extraction is between US$30 and US$70 per barrel. At the current price level, the capital chain will break. Well-known shale oil company American Whiting Oil Company has applied for bankruptcy protection. If these companies undergo large-scale debt restructuring, they will cause a serious crisis, which is also the most worried issue of the US government.
On the other hand, oil exporting countries and oil and gas companies will be under great pressure. It is understood that when Saudi Arabia formulated the budget at the beginning of the year, the reference oil price standard exceeded 60 US dollars per barrel, and Russia exceeded 40 US dollars per barrel. Even if the cost of exploitation in both countries is lower than that of the United States, the current oil price level puts these two major oil-producing countries under great financial pressure.
In addition, the financial pressures of large oil and gas companies represented by ExxonMobil, BP, Shell are all increasing, and can only be balanced by drastically reducing capital investment.
However, some analysts believe that maintaining low oil prices is not entirely a bad thing. At this stage, the European and American central banks are vigorously using quantitative easing policies, which will lead to inflation during economic recovery, and low oil prices are conducive to curbing inflation.
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